The nexus between renewable energy, economic growth, trade, urbanisation and environmental quality: A comparative study for Australia and Canada

Abstract

Using a comparative approach, this study examines the nexus among renewable energy consumption, economic growth, trade, urbanisation and CO2 emissions for Australia and Canada for the period 1960–2015. The Autoregressive Distributed Lag (ARDL) bounds tests are used to explore the long-run relationships amongst the selected variables and the causal relationships are examined by the vector error correction model (VECM) Granger causality tests. The findings suggest that there is evidence of the long run relationships amongst the variables. The results in Australia indicate that in both the long run and short run, economic growth increases CO2 emissions, whereas in the short run, the trade and renewable energy consumptions decrease CO2 emissions. The VECM causality tests for Australia indicate that in the short-run, the economic growth, trade, and renewable energy consumption Granger cause CO2 emissions; whereas the long-run causal relationships are found among CO2 emissions, economic growth, trade and renewable energy consumption. In the case of Canada, the results show that in both the long run and short run, trade increases CO2 emissions, while in the long run the economic growth and urban population increase CO2 emissions. The VECM causality analyses show the long-run bidirectional causality among CO2 emissions, economic growth, and renewable energy consumption. In addition, the CO2 emissions tended to decrease in Australia but not in Canada after each country officially ratified the Kyoto Protocol in 2007 and 2002, respectively. Policy recommendations are made based on these findings.